Diageo tight-lipped on Mallya lawsuit

Diageo has declined to comment on reports from India that it will sue VJ Mallya, the former head of United Spirits which is now controlled by the UK group.

The suit is said to include $135 million that Diageo paid to Standard Chartered Bank as a conditional guarantee for the liabilities of Watson Ltd, a company affiliated with Mallya. Diageo was forced to meet that guarantee when Mallya defaulted on it last year.

When Diageo bought control of USL, it issued a guarantee to Standard Chartered against Watson’s debt to release USL stock that was to be acquired as part of the deal. Diageo, it is reported, holds counter-indemnities from Watson and Mallya in respect of its liabilities under the guarantee.

The reports, quoting two unnamed Diageo executives in India, say that the British company will claim Mallya’s stake in the Force India Formula One team had been pledged as security for Watson. Mallya, the team principal, was in the pits at Silverstone to watch Sunday’s British Grand Prix.

In addition, it is also reported that Diageo will withhold the $35m of the $75m payment for Mallya to step down as chairman of United Spirits.

The initial $40m paid to Mallya last year is the subject of court action in India. Mallya allegedly transferred the cash to family members in the US but his creditor Indian banks claim he should have used it in part repayment of his £1bn-plus alleged debts incurred after the failure of his ill-fated Kingfisher Airlines.

United Spirits has filed multiple complaints against Mallya after inquiries uncovered “improper transactions”. USL alleges that Mallya diverted the funds to companies in which he had a direct or indirect interest, mostly located in tax havens.

Mallya fled to the UK in March 2016. He is fighting extradition proceedings brought by the Indian courts. He denies all charges and says they are politically motivated.